India-based outsourcer Genpact has greatly expanded its Mexican operations in the last year, focusing on lower-end business process outsourcing instead of IT services work. The former GE unit calls Mexico a gateway to India offshoring and a "nearshore" alternative for BPO and call center work.

In September, Genpact opened its new Latin American
headquarters in Ciudad Juárez, Mexico, just south of
the United States border from El Paso, Texas. The sprawling,
custom-built 125,000-square-foot facility on the north side
of town represents a major expansion of the New Delhi,
India-based outsourcing provider’s Mexican operations.
This new facility brings Genpact’s Mexican employment
to 2,500 people at three sites. The company had $613 million
in revenues in 2006, employs 29,400 worldwide.

Genpact (the company was GE Capital International Services
before becoming an independent company in 2005) has had a
presence in Mexico as a provider of business process services
for 15 years. So with MexicoIT (an organization founded by the
Mexican government in partnership with local technology
trade groups), marketing Mexico as “a
world-class” alternative to India for IT outsourcing,
and increased interest on the part of U.S. companies in
“nearshoring,” one might assume that
Genpact’s expansion is part of a ramp-up to begin
offering more sophisticated IT services to global customers
south of the border.

In an interview with CIO.com, Ferrara also explained the
benefits of the Juárez operation as a gateway from the
U.S. to India, the challenges of the Latin American IT services
market and Genpact’s expansion strategy.

Stephanie Overby, CIO.com: You’re
originally from Mexico and have been helping multinational
companies set up shop locally for more than 25 years. How has
the local market for IT and business process services changed
over time?

Juan F. Ferrara, Genpact’s chief operating
officer for the Americas: I used to work as part of
McKinsey’s Business Technology Office (BTO). One of the
service lines we offered was helping companies develop sourcing
strategies for their global operations. The majority of those
conversations were with U.S. companies. Very few local Mexican
companies were looking at outsourcing, except for a few
airlines and insurance companies looking at outsourcing their data centers for
efficiency gains.

I opened up McKinsey’s Monterrey operations in 1991.
They’d had an office in Mexico City but wanted to open
one in Monterrey, where most of the large, industrial companies
were.

Today service providers in Mexico are serving a combination
of customers. A good portion of the work is done to support the
operations of U.S.-based companies operating out of Mexico. But
more and more of the work is for large Mexican companies
looking for services on the infrastructure and software
side.

It’s not the traditional view of outsourcing that you
think of when you think of outsourcing to India. It’s not
about reducing headcount internally. It’s more about
supporting a local operation.

CIO.com: Genpact has had a presence in
Mexico for a while. Tell us about the recent expansion in Ciudad
Juárez.

Ferrara: Genpact has been in Mexico for 15
years. This new building in Juárez replaces the old
building that dates back to the 1930s. It’s a 40 percent
expansion in space. It’s a modern environment. And with
lots of clients asking for more compliance and security
requirements, we can offer them their own secure space.

CIO.com: There seems to be increased
interest in nearshore outsourcing of IT and business process
work. And MexicoIT, is actively promoting Mexico as “a
world-class, quality” alternative for IT outsourcing.

Ferrara: There is a lot of interest in
nearshoring IT services to Mexico. But at Genpact, we do IT
services out of India, not Mexico. Juárez, where Genpact
opened its newest facility, is not the strongest in terms of IT
skills. The opportunity for us in IT services is elsewhere.

CIO.com: So what services does Genpact
offer out of the Juárez facility?

Ferrara: We have five lines of business in
Mexico. They’re mainly BPO types of services, not IT. We
offer: Back-office finance and accounting services (simple
transaction pieces), document management, transportation
management (processing air bills, courier bills, data entry), an industrial center of excellence (services
ranging from very simple tasks up to high-end satellite
monitoring for trucks in the U.S.), and voice services
(customer service and collections, mostly in English with
Spanish as a bonus).

We have 2,500 employees altogether in Mexico, with two
facilities in Juárez and one in Caborca (a much simpler
facility).

CIO.com: So Mexico is more of a complement
to India rather than a replacement?

Ferarra: Yes. One important advantage of
Mexico is location. Juárez is a border city not far from
El Paso, where we are the largest user of the U.S. Post Office. Logistically speaking, BPO
operations in Mexico makes a lot of sense. It’s a
gateway. There is an incredible amount of paper that needs to
be scanned and indexed and transferred to India for further processing, and there
is a natural advantage to be so close to the U.S.

A mortgage operator, for example, may need to have its voice
operations in the U.S., some back office operating out of
Mexico, and then have the mortgage processing done in India. We
can do all of that to serve the global customer. That’s
part of the design from the beginning, to do the lower-end work
in Mexico and then transfer the higher-end work to India.

There’s also an emerging group of customers in the
mid-market ($1 billion to $5 billion in revenues) who are a lot
more comfortable with nearshore operations. If you can offer
them an onshore location combined with a nearshore location,
it’s a lot easier to have that conversation about
outsourcing. That segment will continue to grow.

CIO.com: Is the idea of Genpact offering
higher-end IT services out of Mexico for customers in the
Western hemisphere completely off the table?

Ferrara: I don’t think IT is out of
the question. It’s just a matter of, where do you invest
first? Do you invest in Latin America, where our clients are
actively pushing us to go? Countries like Brazil, Costa Rica, and
Argentina are stronger in those fields.

We have customers who are increasingly defining their
sourcing strategies: 40 percent India, 40 percent Asia, 10
percent Latin America, and 10 percent other places. So we have
to make sure we have a global footprint in IT and BPO. So
it’s only a matter of time before we’re able to
offer all of those services in Latin America as well. The
clients want it because it’s good from a strategic
sourcing perspective to avoid any geographic concentration of
risk.

There are companies in Mexico who are growing their IT
offerings and investing in IT services. Genpact is evaluating
it but hasn’t decided either way.

CIO.com: What are the challenges of the IT
services market, not just in Mexico, but in Latin America
generally?

Ferrara: Latin America has a peculiarity
other regions don’t have. From a global client
perspective, most of the Fortune 100, maybe even 200, have
their Latin American back-office operations split between two or maybe
three countries: Mexico, Brazil and one other Spanish-speaking
country in Central or South America. It’s rarely concentrated all
under one roof.

One challenge is, how do you help them consolidate these
operations and make them more efficient? It’s an
integration challenge and a technological platform challenge.
Most global players have custom-built systems for each country.
It’s not all SAP or Oracle, and they’ve been using
these custom systems for 20 or 30 years. Because of these
platform issues, customers don’t see themselves operating
out of one location.

You are also are dealing with upwards of 15 countries in
Latin America that are all “subscale.” Mexico and
Brazil have scale, but there are many, many small countries.
Costa Rica, Guatemala, the Dominican Republic – those are
very small countries. You have to know how to do it right and
avoid saturating the market. You can take some of the best
practices from India and look at second-tier cities rather than
going to the main city to set up a large center. You’re
already seeing that in Brazil and Argentina, where companies
are setting up call center and BPO operations outside of São Paulo and Buenos Aires,
where they’re already in second- and third-tier
cities.

And labor costs in some of these countries are much, much
lower than in Brazil or Mexico or India. The labor arbitrage
opportunity does not really exist. You end up with small or
negative labor arbitrage.

When you add all of this together, it’s hard for
global companies to imagine a value proposition for outsourcing
or consolidating on a shared services model. And this has to be
client-driven. It absolutely has to be. So there haven’t
been as many BPO or IT clients in Latin America for these
reasons.

CIO.com: But you obviously do see that
desire to outsource or consolidate IT and business process
operations in Latin America increasing in the future?

Ferrara: There are some multinational
companies who are developing a shared services model.
We’re helping some companies do this as we speak. They
want the operational expertise – Six Sigma, lean culture,
process standardization. And for those reasons they’d
prefer us to take over their operations. They want to distance
themselves from the back-office operations and transfer those
assets to someone who can operate in a better way. BPO in Latin
American will grow. More and more clients are asking us about
it. It’s really only just begun.

CIO.com: When it comes to global expansion,
Genpact seems more interested in organic growth than in
acquisitions. Is there a reason for that?

Ferrara: We’ve made some selective
acquisitions – two U.S. acquisitions [Money Line Lending
Services, a mortgage provider, in July 2006, and Creditek
Corp., a finance and accounting services outsourcer, in 2005].
But mostly we have been growing on our own. My sense is, you
have to do a little bit of both. There is no right or wrong
model.